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Asymmetric Effects of Intergovernmental Grants: Analysis and Implications for U.S. Welfare Policy

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  • Craig Volden

Abstract

Theories of federal grants to states and localities suggest that these grants have a stimulative effect on spending, causing recipient governments to expand and contract programs along with changes in the grants. However, policymakers may respond differently to grant decreases than to grant increases because they face political and bureaucratic pressures to expand programs. These asymmetric reactions may depend on specific political structures. Pooled time-series regressions of data from the Aid to Families with Dependent Children program across 46 states from 1965 to 1994 demonstrate state government responses to grant changes. Bureaucratic pressures and proposals lead states to expand their welfare benefits upon increases in federal grants, but not to contract them upon decreases in federal grants. With regard to the 1996 welfare reforms, this study indicates that the switch to block grants will lead to little or no state reduction in welfare payments. Copyright , Oxford University Press.

Suggested Citation

  • Craig Volden, 0. "Asymmetric Effects of Intergovernmental Grants: Analysis and Implications for U.S. Welfare Policy," Publius: The Journal of Federalism, CSF Associates Inc., vol. 29(3), pages 51-73.
    • Handle: RePEc:oup:publus:v:29:y::i:3:p:51-73
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    Cited by:

    1. Saeid Mahdavi & Emmanuel Alanis, 2013. "Public expenditures and the unemployment rate in the American states: panel evidence," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2926-2937, July.
    2. Köppl–Turyna, Monika & Pitlik, Hans, 2018. "Do equalization payments affect subnational borrowing? Evidence from regression discontinuity," European Journal of Political Economy, Elsevier, vol. 53(C), pages 84-108.
    3. Giampaolo Garzarelli & Lyndal Keeton, 2016. "Policy Experimentation and Intergovernmental Grants in a Federal System," Working Papers 8/16, Sapienza University of Rome, DISS.
    4. Phuong Nguyen-Hoang & Yilin Hou, 2014. "Local Fiscal Responses to Procyclical Changes in State Aid," Publius: The Journal of Federalism, CSF Associates Inc., vol. 44(4), pages 587-608.
    5. Sangsoo Lim & Sanghoon Lee & Pilhyun Kim, 2017. "Asymmetry in the fly-paper effect of the national subsidy in Korea," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(4), pages 560-574, October.

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